At the very core, a credit crisis is when a number of financial institutions see the loans they have issued start to default. As this phenomenon occurs, the financial institutions’ balance sheets are shrunk significantly. Their assets, the loans, become non-performing assets and do not provide them with any income or payments; this results in financial institutions not issuing further loans, which, in turn, leads to lower funding ability and higher interest rates. The credit crisis then moves into a liquidity crisis, as the borrower can’t pay the higher rates and is unable to fund daily operations. A credit crisis could then lead to insolvency and bankruptcy.

Between 2007 and 2009, the U.S. economy witnessed a credit crisis that was initiated by massive downturn in the housing market. As the value of home prices declined, those who had mortgages started to default; banks, in return, saw their balance sheets shrink immensely. The banks essentially stopped lending to consumers and each other. Less credit in the market took the U.S. economy towards a downturn, resulting in lower consumption and business investments.

To fight all this, the Federal Reserve and the U.S. government had to intervene, bailing out banks that were facing severe liquidity crisis. Many banks were closed by the government, investment banks like Lehman Brothers filed for bankruptcy, and others were sold.

Six years ago this month, in the midst of the Great Recession, Lehman Brothers, one of the most well-known investment banks in the U.S. economy, filed for bankruptcy.At the time, Lehman’s bankruptcy sparked widespread worries…and the U.S. financial system teetered on the verge of collapse. For those of us who remember that time,. Read More

The U.S. dollar is still regarded as the reserve currency of the world. The majority of international transactions are settled in U.S. dollars and most central banks around the word hold it in their foreign exchange reserves.But since the Credit Crisis of 2008, and the multi-trillion-dollar printing program by the Federal Reserve,. Read More

Remember Alan Greenspan? He was the chairman of the Federal Reserve from 1987 to 2006. Several media sources, including this one, blamed the sub-prime mortgage fiasco that led to the Credit Crisis of 2008 on the easy money policies under the leadership of Greenspan.But the Credit Crisis aside, it is ironic but true that Greenspan has. Read More

My colleague Robert Appel (BA, BBL, LLB) issued a research paper to the subscribers of one of his financial advisories earlier this week. I thought it important that all my readers be aware of and understand the crux of what Robert is saying about our current economic situation and where it will eventually lead.Here it is:“The actions. Read More

In 2012, I predicted that if the Federal Reserve couldn’t get the economy growing again, it would take interest rates into the negative zone.Well, yesterday, the European Central Bank (ECB), the second-biggest central bank in the world, trumped the Fed and became the first major central bank to offer depositors negative interest. Read More

Video: Here is why you should be Bullish on Gold | By: Michael Lombardi

Forecasts Aug. 2, 2015

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, the U.S. economy is also entering a slow growth phase (1Q15 GDP of -0.7%) which will negatively impact an already overpriced equity market.

Resources

Categories

Follow Us

Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results.